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Strategic merger decisions across business cycles: Evidence from bidders' time-varying appetite for operating leverage

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  • Chung, Chune Young
  • Hur, Seok-Kyun
  • Wang, Kainan

Abstract

In this study, we examine how bidders' appetite for their targets' operating leverage affects merger activities, and whether this appetite varies throughout the business cycle. We find that the association between a firm's operating leverage and the likelihood of it becoming a target or an acquirer—as well as the deal premium, the bidder's cumulative abnormal returns around the deal announcement date, and the bidder's long-run buy-and-hold abnormal returns—depend on the business cycle. The time-varying effects of operating leverage on merger decisions are strategic and consistent with their time-varying benefits and costs.

Suggested Citation

  • Chung, Chune Young & Hur, Seok-Kyun & Wang, Kainan, 2017. "Strategic merger decisions across business cycles: Evidence from bidders' time-varying appetite for operating leverage," International Review of Economics & Finance, Elsevier, vol. 47(C), pages 143-158.
    • Handle: RePEc:eee:reveco:v:47:y:2017:i:c:p:143-158
    DOI: 10.1016/j.iref.2016.10.010
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    More about this item

    Keywords

    Strategic merger; Operating leverage; Business cycle; Firm performance;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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